Independent Contractor vs Employee: Which Is Better?
Independent Contractor vs Employee: Which Is Better?

Independent Contractor vs Employee: Which Is Better?

Many independent contractors wonder if they should be an employee. There are both positives and negatives of being an employee and an independent contractor. So, which is better? There is no straight answer. It will depend on what is most important to you and your particular circumstances. We lay out the benefits of both to help you make a decision.

What Is An Independent Contractor?

An independent contractor provides good or services to an employer. The terms and conditions of the goods or services to be provided are laid out by contract between the independent contractor and the employer. The employer does not have control over when and how the work will be performed. An independent contractor generally works in their own workspace and provides their own work materials. An independent contractor is not on company payroll and, instead, gets paid by each completed project.

What Are The Benefits of An Independent Contractor and An Employee?

There are benefits of being an independent contractor and their are benefits of being an employee. Here we break down the common benefits:

Independent Contractor
  • You are your own boss and have greater independence by choosing your own work hours;
  • You can’t fire yourself;
  • You can deduct business related expenses on taxes;
  • You can choose who you work with; and
  • May have better work-life balance as you can choose where, when and how you work.
  • Usually do not have to worry about “finding” business;
  • Entitled to company group benefits – health insurance, 401K, etc.;
  • Do not have to pay a self-employment tax; and
  • Usually takes more vacation time.

Do Independent Contractors Pay More Taxes?

It depends on the individual’s business if it has to pay more taxes than an employee. An employee has to pay federal and sometimes state and local taxes. An independent contractor has to pay a self-employment tax. These taxes are equivalent to the Medicare and Social Security taxes that you would pay if you were an employee. However, as an employee, your employer will cover half the cost of the taxes. Unfortunately, as self-employed, you will be required to pay the entire tax yourself.

Paying the entire tax yourself may turn out to be less if you have a lot of deductions. When you are self-employed, you can deduct your business expenses. There are so many deductions you can write off, including health insurance, home office deductions, car mileage, business travel expenses and deductions for your phone bill.

If you are thinking of becoming an independent contractor or closing your business to become an employee, you may want to speak with a certified account or financial advisor. Mapping out financial scenarios may be to your benefit before making a big leap.

Sum It Up

Choosing whether being an employee vs independent contractor is better comes down to what is most important to you. If it is working your own hours and being your own boss, then maybe being an independent contractor is for you. If you think that you would make more money being an employee and wouldn’t have to worry about “finding business” you may want to work for an employer.

DisclaimerThis article is intended for informational purposes only. It provides general information and is not intended and should not be construed as professional advice. The author is not your attorney, accountant, financial planner or any other professional and no professional-client relationship is created. We do not represent that the information provided is accurate or up-to-date as laws and regulations are always changing. If you have an issue that requires professional help, you should contact the appropriate professional to help you on your specific set of facts. Please read the Terms and Conditions for additional information.

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